AAR Dissents From Its Own View On Taxing Software and ruled Software is copyright; Even if ‘copyrighted article’, License fee taxable as ‘royalty’
In Re: Millennium IT Software Ltd (AAR) – In the present case, not merely the use is licensed but the licensee is given the right to copy it and use it wherever it is needed by it for its business. The right given for a consideration to copy the copyrighted software and use it for its own purposes by ICEL whenever and wherever needed by it, clearly attracts the definition of royalty to the consideration paid by ICEL to the applicant, though the right granted may be limited and does not take in a right to further transfer the right or its use.
In the Ruling in Dassault Systems (AAR 821 of 2009), this Authority dealt with a different fact situation. In that case the applicant was marketing licensed software products through a distribution channel. It was found therein that ―no rights in relation to copyright have been transferred nor any right of using the copyright as such has been conferred on the licensee.‖ It has also to be noted that the definition in DTAA including use of a copyright was also not dealt with specifically. Use of a process found in the Income-tax Act was alone specifically dealt with. The enjoyment of some or all the rights which a copyright owner has is necessary to trigger the royalty definition, it was observed. Is it necessary in the context of the DTAA speaking of receipt of consideration for use of any copyright of a literary, artistic or scientific work and the entitlement of an owner of a copyright to license any interest in the copyright? Surely, will not the right to use the software exclusively, a right or interest of the owner of the copyright which is granted or shared with another by the grant of a license for consideration? That consideration, it appears to me, can only be royalty in terms of the DTAA and the Income-tax Act.
